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Fall in Welsh house prices continues: now £2,048 in a year

Richard Sexton, director of e.surv, part of LSL Property Services, comments: “Unlike the rest of Britain, the Welsh housing market remains in slow reverse. Wales has seen the biggest annual average house price fall of any region: prices plummeted £2,048 in the past year. However, outside of Wales, only Londoners saw their houses rise significantly in value in April. Sales in Wales are depressed compared to England, but London is the exception, not the rule, so the dramatic comparison is unclear.

“The torpor in the Welsh market is due to inadequate mortgage availability for first-time buyers. Encouragingly, more Welsh buyers are making enquiries – and plans for new estate agency businesses are also rumoured, so the interest is there. It’s the inaccessibility of mortgage finance for the average buyer that’s reining in demand. High rents and growing inflation are reducing the amount first-time buyers can set aside to meet the large deposit requirements required by lenders.

“This has lead to the fall: average prices rolled backwards by £219 in the last month. Despite the positive start to this year prices now stand a long distance away – 10.8% lower – from their record peak in 2007. Even by historic standards it’s poor. And the sinking prices are bucking the usual summer trend of sales rising as the summer season begins. House sales are low, especially at the bottom end of the market. And strict mortgage requirements and lenders caution have made it tough to boost sales activity substantially which has also slowed down activity at the higher end of the market.

“The future performance of house prices at a local level will depend to a large extent on how local economies and labour markets perform. Banks and building societies are more likely to lend to areas which they believe will be better protected from both house price falls and job losses. In April house prices fell in 12 of the 22 unitary authorities. Within the country, there is a clear north / south divide. The 14 southernmost areas of Wales saw prices fall almost 19%, standing in stark contrast to the rise of 2.2% in prices in the six northernmost areas. Not only does this point to the population variations in different parts of the country, it also shows parts of Wales remain in post-industrial decline.

“The lending picture is in need of a blast of colour to help clear weak points in the Welsh housing market. Indigenous lenders are doing their bit but wider support from the mainstream sector is also needed for a sustained recovery. Voices are also calling out for the Welsh government to do more to help first-time buyers. The Help to Buy scheme is a step in the right direction, but wealthier buyers will continue to have an overly large impact on the market and house prices as the year goes on. Hopes are high that the Government’s new initiatives will put the Welsh housing market back on course.”

The average price of a house in Wales was £151,821 in April, an increase of £310 (0.2%) from January, but a fall of £219 from last month. Earlier in the year there had been some hope that the overall downward trend was being reversed. However, the evidence of the last two months suggests that this is not the case. Indeed, prices are now £18,465 or 10.8% below their historic 2007 peak of £170,286. The annual rate of change at -1.3% is also greater than last month’s.

Wales does indeed seem to be a market apart, with a year on year fall greater than that in both the North (-0.5%) and in Yorks & Humber (-0.7%), the only other regions with negative annualised figures. The contrast with Greater London is stark (+10.1%), as well as with other regions all showing positive annualised growth rates of between +0.3% (South West) and +4.2% (East Anglia).

In the face of the continuing falls in Welsh prices, it is interesting to note the results of a recent YouGov survey (undertaken in March 2013), which suggest that 84% of adults in Wales want to become property owners in the next decade. This figure compares with 79% in Great Britain as a whole. The same survey also reported that 47% of adults in Wales want to buy a first, or subsequent, home in the next two to three years.

Other statistics remain positive. The CML reports that lending in Q1 2013 to first time buyers (FTBs) in Wales increased by 6% (£190 million) compared to the same period in 2012. This sector of the market also accounted for some 44% of all house purchases in The Principality, up from 41% in Q4 of 2012, and 39% in Q1 of 2012. The loan to value (LTV) ratio in Wales for FTBs is 85%; higher than the 80% figure for the UK overall. Is it perhaps conceivable that we are witnessing a correction to more stable, realistic pricing, bearing in mind that some commentators regard the market as being overheated in any case.

The RICS statistics for April report that new buyer enquiries are more than twice their three month average, with new vendor instructions being around their normal average. In addition, RICS members report an “agreed sales” statistic for the month of almost five times the average. The average stock i.e. the number of houses for sale for each estate agent in the RICS survey is up as well. Stocks at estate agents in Wales were the second highest of those in England & Wales as a whole, after the North West.

Figures released by the Welsh Government show that the number of new dwellings started in the year to March 2013 was up 6% on the previous twelve months, although still well below the level seen prior to the economic downturn. During Q1 2013, the number of completed dwellings rose by 3% compared with Q1 2012. There is however a significant variation between the houses completed in Q1 2013 for Registered Social Landlords (up 65%) and those for the private sector (down by 5%).

Anecdotal evidence from RICS members in Wales does indeed point to a more positive view, with buyers looking for realistic rather than fanciful pricing. The overall picture however remains less than clear. Perhaps pertinent is the comment by one RICS member this month who said that the Welsh housing market is very much like the weather “unpredictable”.

Figure 1 above shows the average house price in Wales for the period April 2012 to April 2013. We can see that the red line showing the month’s average price is settling more closely to the black trend line, emphasising the general fall in prices. There has been a negative change now for nine of the past twelve months, with the size of the monthly falls being greater in numeric % terms than the rises, with the exception of February’s increase of +0.8%. Overall, the decline which started in October last year is being maintained, with January’s fall and February’s rise almost negating each other.

We have already noted that Wales now has the distinction of being the region in England & Wales with the largest annualised average house price fall at -1.3%, the only others being the North at -0.5%, and Yorks & Humber at -0.7%. It is also worth remembering that these annual % statistics are not subject to underlying seasonal trends, and so can be compared directly year on year. Moreover, taking the effects of inflation into account (April RPI 2.9%), the actual monthly fall becomes -4.2%.

Figure 2 above shows the number of monthly transactions in Wales recorded by the Land Registry and as estimated by LSL Acadametrics for the period January 2007 to April 2013, without seasonal adjustment.

Whilst we might have expected to see an increase in the number of transactions this month (the usual trend is upwards as the summer season begins) it seems that Wales has bucked this trend. April transactions at 2,200 were down by -14% compared with our estimated March figure of 2,550. And again we see a north/south divide. Taking the first four months of 2013, there were estimated totals of 1,607 transactions in the 14 northern areas, compared with 4,713 in the south. Over and above these figures, Ceredigion and Powys in the middle added a further estimated 436 transactions since January of this year. Note that these figures are estimated, and will rise somewhat as the Land Registry data emerge.

Over the past ten years to the end of April, the average number of transactions per month has been 3,636, with a peak at the end of December 2006 of more that 6,000. This month’s figure of 2,200 represents a fall of around 39% against the ten year average, and slightly more than 12% against the monthly average of 2,509 over the twelve months to end April 2013.

The CML reported a seasonal fall in lending for house purchases in Q1 2013 comprising 4,500 loans, 8% lower than in Q1 2012 and 26% lower than in Q4 2012. Whilst the CML total excludes April, our total transaction estimate suggests that this trend has been continued.